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Pace of NPA formation will hinge on economic recovery, says SBI chief

Beena Parmar

The pace of formation of bad loans in the banking system will largely depend on how the economy fares, Arundhati Bhattacharya, Chairman, State Bank of India told Chillicious. Growth in bad loans has eased marginally in the last couple of quarters, but analysts say that also it has to do with do with the drop in growth of loans.

“Anything that happens is not outside of the economy,” said Bhattacharya.

“Even today, your capital formation and investments are at very low levels. So, those things need to go up, your capacity utilisations need to go up,” she said.

India’s economy is estimated to grow at 7.1 percent in the year through March, the slowest pace in three years.

SBI’s gross non-performing assets (NPAs) rose marginally to Rs 1.08 lakh crore (7.23 percent of total loans) at the end of the December quarter from Rs 1.06 lakh crore in the September quarter. For the banking sector overall, the bad loans stood at over Rs 7 lakh crore.

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Further, the credit growth for the banking sector has slipped below 5 percent to a multi-year low of 4.8 percent as on February 17, down sharply from 11.2 percent a year ago. This suggests banks have hardly been giving loans during that period.

According to media reports, small and mid-sized enterprises have been hit hard by demonetisation and so recovery of loans could be an issue now that the forbearance period granted by the RBI is over.

“Forbearance of this kind is always a bad idea…For two months if you (SMEs) have not made money, third month where will you make all of the three instalments money? So, obviously there is a little more stress there,” she added.

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During the demonetisation period, this portfolio accounted for Rs 2,000 crore of SBI’s total book.

While SBI chief is optimistic on the demand front at the rural level, she said that the economy can move forward only if that demand gets the needed supply.

“The good thing is in India, the demand exists. There is demand because of the sheer pressure of demography…Also, we are more or less a consumption economy. We are not only a saving economy, unlike some of our larger neighbours. So demand is there, but we have to nurture the demand, we have to deliver to that demand, only then things will start moving.”